A state agency has selected San Francisco’s Build Inc. to redevelop the Department of Motor Vehicles field office in the Panhandle, a 2.5-acre parcel that could include a mixed-use project with housing and retail, as well as a new DMV regional office.

Under the scenario being hammered out, Build Inc. would enter into a long-term ground lease for the site at 1377 Fell St., currently home to the dilapidated 48-year-old DMV office and an expansive surface parking lot. The developer would construct a new DMV office, which would then be leased back by the state, as well as an apartment and retail project that would fill in one of the largest holes in the fabric of the dense neighborhood by University of San Francisco and bounded by the Western Addition and the Haight.

“We want to leverage the value we have in state-owned properties in order to gain new DMV facilities and increase new housing and amenities for the community involved,” said Marando.

Loring Sagan, an architect and principal for Build Inc., declined to comment because negotiations are still ongoing, and his firm is still several months away from finalizing a plan. Kevin Rafter, incoming president of the North of the Panhandle Neighborhood Association, said neighbors will closely monitor the design of whatever is built there, as they did with the last two mixed-use projects in the area: Emerald Fund’s 134-unit Fulton Market and Signature Properties’ 70-unit Broderick Place.

“In both cases folks pushed the developer to make design consistent with the Victorian architecture of the neighborhood,” he said.

Rafter said the neighborhood has been attracting more families and, unlike the smaller one- and two-bedroom condos at Broderick Place, it would be nice to see some housing that could accommodate kids.

“There are definitely more families in the neighborhood and as far as I am concerned this is an awesome place for families,” he said.

The developer may also be pressed into providing some parking for the neighborhood. Years ago the parking lot at 1377 Fell St. was open at night to neighborhood parking, but in recent years has been only open during DMV hours.

“Parking is a big deal around here and a big question mark,” he said.

Build Inc. is currently developing the 142-unit Esprit in the Dogpatch, a project that is a combination of new construction and historic rehab. The firm was also selected to design and develop 12 structures on Octavia between Oak and Fell streets, one of the parcels that was freed up when the freeway ramps were replaced with the new Octavia Boulevard. Sagan also started the Blue Bottle Coffee Co., which has a new cafe at Mint Plaza and a famously-crowded kiosk in Hayes Valley.

In 2006, the California Department of Motor Vehicles, in partnership with the California Department of General Services, announced plans to develop two DMV offices, the one in San Francisco and one in San Diego. At the time, Sunne Wright McPeak, who oversees the DMV, said the project “makes too much sense not to pursue.”

“The DMV is participating in helping realign the job-housing balance while it benefits by getting new, expanded facilities to replace offices that no longer meet customer needs,” she said. “We foresee that the new buildings, both in San Francisco and San Diego, would be ‘mixed-use’ — in other words, space would be made available to residential, commercial and retail tenants as well as for enlarged DMV offices that will substantially improve the customer service in both areas for many years to come.”

The Fell Street office in San Francisco handled more than 300,000 driver license and registration transactions last year and is one of the busiest offices in the DMV’s 169 facility system.